Gordon Brown tried to recover his authority yesterday after staging a humiliating U-turn by agreeing to compensate many of the 5.3 million losers from his abolition of the 10p lower rate of income tax.
A growing revolt by 45 Labour MPs which threatened to inflict a damaging defeat forced Mr Brown into a climbdown. The likely help for low-paid workers was rushed out before Prime Minister's Questions to prevent him being attacked by his own backbenchers and to limit a backlash at the local elections a week today.
The MPs welcomed the retreat and quickly abandoned their rebellion. But ministers admitted privately that Mr Brown's standing had been damaged because he had been slow to realise the impact of the change he announced in his final Budget last year.
In a series of interviews last night, the Prime Minister denied that he had been "pushed around" but had to fend off accusations he is now a "lame duck" leader. He insisted he had listened to the public's concerns and acted upon them. "The right long-term decision was to abolish the 10p tax rate," he added. "The issue is not votes in the Labour Party, it's doing the right thing."
Mr Brown tried to squash speculation that he would be forced into a similar U-turn over his plan for suspected terrorists to be detained for up to 42 days, which is opposed by about 50 Labour MPs. Ministers fear the tax retreat will embolden critics of the Counter-terrorism Bill.
After talks with Mr Brown, the Chancellor Alistair Darling quelled the tax rebellion by announcing how he intended to soften the blow from Mr Brown's tax reforms. Pensioners aged 60-64 will be helped through higher winter fuel allowances, backdated to the start of the financial year this month.
Low-paid people without children who do not qualify for tax credits may recoup the average losses from the 10p decision, said Mr Darling. Under-25s, who are not eligible for tax credits, could receive a higher national minimum wage.
However, the Government refused to guarantee that all the estimated 5.3 million losers would be fully compensated or to say how much its climbdown would cost. Frank Field, the former minister who led the revolt, estimated that it could cost about £700m – much less than the £7bn cost of keeping the 10p rate. Mr Field said the retreat was a victory for low-paid people and Parliament and hoped it marked the start of a "second phase" of Mr Brown's premiership in which he listened more and acted accordingly.
Brown allies denied that his final Budget had unravelled as the 10p rate would not be restored. Ministers said that a climbdown was better than a Commons defeat on Monday which could have threatened Mr Brown's premiership.
But the Tories insisted that Mr Brown had made a "cynical calculation" to head off a defeat and that his "panic move" had been driven by self-interest rather than the national interest.
The Prime Minister suffered a Commons mauling at the hands of David Cameron, the Tory leader, who told him he had suffered "a massive loss of authority" thanks to his "humiliating climbdown". He added: "The Labour Party has finally worked out they've got a loser not a leader."
But Mr Brown replied: "The central issue is that we have taken more people out of poverty than any previous government. The choice is very clear – between a Conservative Party that would cut the incomes of the poor and a Labour Party that will increase them."
The Liberal Democrat leader Nick Clegg said: "The Prime Minister is desperately shifting in the wind as he tries to avert political meltdown."
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